LawFlash

Labour and Employment Implications of ‘Brexit’

Labour and Employment LawFlash

The potential that Britain will exit the European Union (“Brexit”) after an upcoming referendum on June 23 raises issues for employers.

The EU is a major source of current UK employment law. The laws relating to unlawful discrimination, working time, maternity and paternity leave, and the protection of employment upon the transfer of a business are either largely or completely due to EU directives. Given that EU employment law has been characterized by some as causing unnecessary “red tape” for businesses, it is tempting to jump to the conclusion that a withdrawal from the European Union would result in rapid and large-scale changes to the regulatory landscape for employment law in the UK. However, in practice, any such changes are likely to be subtle and gradual.

Short-Term vs. Long-Term Implications of a Brexit

If the UK decides to leave the EU, this should mean that parliamentary supremacy will be restored, with the UK government free to make or unmake any law. As a corollary, it should also mean that the UK courts will no longer be bound to follow the rulings of the Court of Justice of the European Union. However, it is not clear how the courts would be expected to interpret domestic law based on EU case law while the UK government negotiates and plans its exit. To avoid legal uncertainty, it is likely that the UK government would seek to maintain the status quo until the political and legal implications of an exit from the EU had been resolved. Negotiating and planning the UK’s orderly exit from the EU is likely to take time, so in the short term, it is unlikely that there will be much change to UK employment law.

On a long-term basis, the impact on UK employment law will depend upon the nature of the relationship between the EU and the UK. On the one hand, if the UK was able to adopt the same position as Norway and remain part of the European Economic Area, it would need to implement much of the existing EU legislation that regulates the employment relationship. On the other hand, the UK would have more scope for making such changes that it saw fit if it simply relied on the World Trade Organisation rules. In practice, it is likely that the UK’s relationship with the EU would fall somewhere between these two positions. If so, it is possible that the EU would require the UK to retain certain employment law as part of any new deal, perhaps so as to prevent the UK from undercutting the EU through what are regarded as unfair competitive advantages.

What Changes in UK Employment Law Could Occur in the Event of a Brexit?

Even if the UK has broad scope to set UK employment law as it sees fit, it is unlikely that the UK government would radically change the law. Many UK laws that originate from the EU have become workplace norms, such that it would be politically unattractive for the government to initiate a wholesale removal. For example, it is difficult to believe that the UK government would scrap the requirement for employees to be legally entitled to a minimum amount of paid holidays each year. In this regard, it is worth noting that while EU law is often criticised for creating unnecessary “red tape” for businesses, UK employment law often goes above and beyond EU requirements. For example, although EU law requires employees to be entitled to a minimum of 4 weeks holiday each year, UK law “gold plates" this requirement by extending this minimum entitlement to 5.6 weeks.

Rather than making major changes to the Working Time Regulations 1998, our view is that any such changes would be modest and targeted. For example, the UK government might seek to simplify the rules concerning the calculation of holiday pay such that employers are entitled to pay basic pay only and are not required to take into account overtime, commission, and other allowances. Another likely target is the requirement that employees work no more than an average 48 hour week. Although in practice, the repeal of the ceiling on the maximum working week is unlikely to be significant. Businesses already circumvent this through the use of an “opt out” agreement.

Although protection against unlawful discrimination is a cornerstone of EU law, prohibitions on race, sex, and disability discrimination were in force in the UK before it was required to implement the EU law requirements. Accordingly, our view is that these protections are unlikely to be removed. Instead, there may be modifications such as the introduction of a cap on the level of compensation an employee might receive if he/she suffered unlawful discrimination.

Family-friendly rights such as the rights to maternity and paternity leave are often criticised as imposing unnecessary EU burdens. However, this is also an area where the UK has gone beyond what EU law requires, such as through the recent introduction of shared parental leave, with the UK government announcing that it wanted to make the UK the most family-friendly country in Europe. So it is difficult to imagine that the UK government would seek to scale back such rights.

It is also unlikely that the UK government would remove the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), which provide protection to employees on the transfer of a business or an outsourcing. Rather, the government might wish to introduce greater flexibility, perhaps making it easier for employers to harmonise terms and conditions of employment between the newly acquired employees and the existing workforce.

Effect of a Brexit on Freedom of Employee Movement Among EU Member States

A foundation stone of the EU is the freedom given to individuals to move from one member state to another. EU citizens have, subject to certain conditions, the right to reside and work in another member state, and once they have resided in another member state for five years are entitled to permanent residence. The effect of a Brexit would be to throw freedom of movement into doubt, potentially restrict employee mobility, and adversely impact the ability of UK businesses to hire employees from across Europe.

Conclusion

While, overall, there would inevitably be some changes, the consequences are likely to be refinements rather than a radical overhaul, and would be subject to the political landscape at the time of an EU exit. It is perhaps telling that UK employment law is not one of the areas that the UK government has sought to renegotiate prior to the proposed referendum on the UK’s continued membership in the EU.

Morgan Lewis will be watching this space and will update our clients as events unfold.

Resources

Morgan Lewis has set up a dedicated Brexit Resource Center to provide up-to-date news and industry contacts to answer any questions you may have about the implications for your business in the event of a Brexit.

For more than three decades, Morgan Lewis has represented companies and institutions doing business in the United Kingdom and globally. Our Brexit team of lawyers have been advising clients on a variety of legal issues in the run up to the decision and are assessing the complex short- and long-term implications of the June 23 vote. Our Brexit Resource Centre will continue to provide guidance on the legal and business implications of the United Kingdom’s decision to leave the union. To view this alert and others, and to gain immediate access to our most recent guidance on Brexit, please visit the Brexit Resource Centre. In addition, please feel free to speak to your usual contact at Morgan Lewis or to contact any one of the Brexit Team via Brexit@morganlewis.com.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers: